Peer-to-peer lending an alternative to banks

Posted: Saturday, Dec 22nd, 2012BY: Larry Coonrod

Borrowers and investors are increasingly going online to by pass banks and deal directly with each other through peer-to-peer lending services.

In a peer-to-peer loan, a borrower makes a request for a certain amount of capital. Investors review the loan proposal, the rating of the borrower and interest rate and choose what share of a loan they want to buy. A $500 loan for example might have 20 investors pledging varying amounts of the total.

Online companies such as Lending Club and Prosper function as the middleman in the transaction: screening prospective borrowers, presenting loan requests to investors, collecting and disbursing payments while taking a small slice of the action for themselves.